All depends on the person and the game
First it has to be a game I'm interested in, and second one that lends itself to observation, like an action game or certain RTS's like SC2. What doesnt work for me so much is large tactical games or sims, take a game of Civ or a total war campaign, for the person playing I'm sure its riveting, but doesnt lend itself to specating for me.
As for the person, well if I take my SC2 example, watching the high level guys play on youtube and stuff I really enjoy watching. For people on a more personal level, its fun to watch my friend mark play games because he has the greatest reactions. He has no filter between his brain and mouth so watching him play any action game / 3rd person shooter in the world is hillarions. Cant stand watching people like my brother though, no offence to him or others like him but he is awful at games and I'm not great but I'm at least compitent and it drives me up the wall watching him. To put in perspective, he stops to turn the camera in every game, cant seem to use both control sticks at a time, so in CoD for example, he will freeze on the spot to turn even an inch to the left.
Also one thing me and my friends do if we are hanging out and one of us is playing a single player game, we pass the controller on every death / game over. Recent example being 3 of us drinking with space marine (campaign on hardest difficulty) being played, 2 watch 1 plays, each time one person dies pass the controller to the next person... yeah me and my friends know how to live it up! /sarchasm